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The Social Cost of Carbon with Economic and Climate Risks

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  • Yongyang Cai
  • Thomas S. Lontzek

Abstract

Uncertainty about future economic and climate conditions substantially affects the choice of policies for managing interactions between the climate and the economy. We develop a framework of dynamic stochastic integration of climate and economy, and show that the social cost of carbon is substantially affected by both economic and climate risks and is a stochastic process with significant variation. We examine a wide but plausible range of values for critical parameters with robust results and show that large-scale computing makes it possible to analyze policies in models substantially more complex and realistic than usually used in the literature.

Suggested Citation

  • Yongyang Cai & Thomas S. Lontzek, 2019. "The Social Cost of Carbon with Economic and Climate Risks," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2684-2734.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/701890
    DOI: 10.1086/701890
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